The Developing Economies, XLII-2 (June 2004): 176–97 STATE REFORMATION AND THE FORMATION OF A NEWLY EMERGING WELFARE STATE IN TAIWAN LIN CHEN-WEI In postwar Taiwan, the legitimacy of the Kuomintang (KMT) regime had depended on the cold war structure and the civil war with the Communist Party. As the KMT regime penetrated Taiwanese society, it exercised tight control over the society through the medium of the strong party organization. However, in the process of democratization that started in the 1980s, the KMT’s authoritarian political rule began to crumble, forc- ing the government to respond to people’s demands in order to survive. The reform and improvement of the social security system in Taiwan were brought about against this backdrop of state reformation. INTRODUCTION EGINNING in the 1980s, Taiwan experienced a dramatic process of democra- tization, which compelled the state regime to change itself. This process B culminated in the victory of Chen Shui-bian of the Democratic Progressive Party (DPP) in the 2000 presidential election. It was the first peaceful transition of power in the history of Taiwan. Another remarkable phenomenon that highlights the 1980s and the 1990s was expansive reforms that were launched in various areas of social security policy, and as a consequence the state policy began to exert more influence over the relations of individual, family, and market. The magnitude of this development is well demon- strated by the fact that in the second half of the 1990s, social security expenditures came to account for more than 20 per cent of government budgetary outlays. Politi- cally and economically, this was a puzzling phenomenon. Politically, organized labor, which is often seen as a crucial factor contributing to the formation of the welfare state, remains underdeveloped in Taiwan. Nor is there any political party worth mentioning that represents organized labor.1 In addition, it was the basically –––––––––––––––––––––––––– The views expressed in the article are solely those of the author and should not be taken as represent- ing the views of any of the Board of Editors, the Institute of Developing Economies, or the Japan External Trade Organization. 1 One of the conclusions reached by Marsh (1996) through his social structure survey was that class structure did not emerge in Taiwan during its development process. TAIWAN 177 conservative Kuomintang (KMT) regime that eagerly promoted social security re- forms. Economically, Taiwan does not suffer from glaring income disparities nor does it harbor a large population living under the poverty line because of the pres- ence of active small and medium-sized businesses and dynamic social mobility. Why, then, did the state expand its intervention in individual, family, and market relations by carrying out social security reforms? In response to this query, this paper argues that the formation of a new welfare state in Taiwan originated in the reformation of the Taiwanese state. This approach adopts macro-political dynamics as the chief explanatory principle. This paper there- fore evolves along the following line of argument. In Section I, existing studies of welfare state formation were reviewed with a view to confirming the validity of the state reformation approach. In Section II, the process of state reformation in Tai- wan is traced and its relationships with the expansive social security reforms is examined. I. PERSPECTIVE OF STATE REFORMATION A. Review of Existing Studies Inquiry into the Taiwan’s welfare state formation is a relatively new research area, as full-scale studies on the subject were launched only in the 1990s. In that short period of time, however, a number of researchers have studied the topic. They were attracted to the topic by the stimulus of a whole spectrum of social security measures taken in that decade, ranging from the introduction of universal health insurance to an attempt to introduce a universal pension program, the expansion of the old-age allowance schemes, and the implementation of employment insurance. These studies can be grouped into two categories. The first comprises macro stud- ies dealing with the origins and characteristics of the Taiwanese welfare state and the other those that discuss specific welfare policies such as the universal health insurance and the pension program on the basis of case studies. Macro studies on the welfare state generally see postwar Taiwan as a “residual welfare state.”2 This characterization is drawn after examining structural factors related to welfare systems (demographic composition, role of the family, and stage of economic development), historical backgrounds involving political and economic aspects, and cultural factors (such as the Confucian culture).3 Their conclusion is that social security policies in postwar Taiwan have been haphazard, lacking any consistent philosophy. This is mostly due to the fact that economic development 2 For the definition of the “residual welfare state” and other various types of welfare states, see Usami’s “Introduction” in this special issue. 3 Studies from different points of view are reviewed by Lin Chen-Wei (2003, chap. 2). 178 THE DEVELOPING ECONOMIES was Taiwan’s top priority and Confucian family values did not necessitate a com- prehensive welfare scheme. On the other hand, case studies have mostly focused on policy reforms since the 1990s. By analyzing the political dynamics that brought about specific policy changes, they offer convincing accounts of why specific welfare policies with spe- cific characteristics had to be introduced at given times.4 However, neither approach has succeeded in presenting a total picture of the formation of a welfare state in Taiwan since the 1980s. The “residual welfare state” arguments fail to provide general reasons for the expansive reforms since the 1980s. On the other hand, the case studies end up merely describing how particular social security systems changed. They fail to contribute toward a structural understanding of why a series of changes, such as the implementation of universal health insur- ance, old-age income security, and employment insurance, took place. This paper will examine the present state and changes of social security in Taiwan, by probing into the postwar Taiwan state and its reformation. It is intended to complement existing studies on this topic. B. Perspective of State Reformation What then is meant by state reformation? According to Skocpol (1992b), “‘State formation’ includes constitution making, involvements in wars, electoral democra- tization, and bureaucratization—large-scale historical process, in short, whose forms and timing have varied significantly across capitalist industrializing countries” (p. 235). State structure, social groups, and institutional characteristics are created during the process of state formation, and these factors determine the form of the welfare state. State formation of the United States, for instance, is characterized by constitutionalism and the rule of law, localism, division of powers, and distrust of government activism.5 This state regime gave rise to a fragmented and residual social security system in the United States. State formation, in other words, deter- mines the form of social security systems. To stretch this concept further, we may argue that endogenous and/or exogenous factors may bring about changes in constitution, form of democracy, and role of the bureaucracy; thus, the reformation of state. If state formation determines the form of social security, state reformation, then, leads to social security transforma- tion. Taiwan did in fact experience state reformation as a process of democratiza- tion wherein social security reforms took place, transforming Taiwan into a newly emergent welfare state. In the following, I will probe into the formation and refor- 4 For studies on individual policies, see Lin Hui-fen (1993), Lee Ming-tsong (1996), and Zhong (1995). 5 For Skocpol’s theories about state formation and analysis of the United States, see Skocpol (1992a, b). TAIWAN 179 mation of the postwar Taiwanese state to identify its impact on social security insti- tutions. II. THE PROCESS OF STATE REFORMATION AND THE EXPANSION OF SOCIAL SECURITY INSTITUTIONS A. In the Postwar Period up to the 1970s Existing analyses of the postwar Taiwanese state can be categorized into two major groups in accordance with the basic points of view adopted. The first type, which focuses on the domestic ruling structure and mechanism, characterizes the postwar Taiwanese state as an authoritarian regime or a quasi-Leninist regime. The other type, which pays attention to the role of the state in economic development, sees Taiwan as a developmental state.6 Studies of the first type focused on the KMT’s party-led political mechanism, its Leninist nature, and its efforts to co-opt local elites through elections. The studies of the second type concentrate on resource mobilization by the government for the purpose of achieving the dual national goal of “counterattack and return to the mainland” and economic development. In this context, they examine the roles played by pro-American technocrats who rationally and strategically implemented policies to achieve these goals. Nevertheless, these two streams of studies identify similar elements that are fundamental to the postwar Taiwanese state formation. Namely, the application of “the Constitution of the Re- public of China”7 to Taiwan, the continued civil war with the Chinese Communist Party regime, introduction of a local